Moving Averages: Simple or Exponential?
A new subscriber to the Battle Plan recently sent me a question which I’m often asked (this same question was asked to me at the New York MTA meeting I spoke at last year at Bloomberg). The question is “which moving average do you use; Simple moving averages (SMA) or exponential moving averages (EMA)?
My answer is always the same. We use simple moving averages. Why? Because there is no statistical evidence that an EMA is better than an SMA.
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The SMA does the job we want it do. It helps us define the trend with the 200 day SMA and it helps us exit trades with the 5 day SMA. When we change the SMA to an EMA we rarely see better test results. In fact in often hurts the results.
I like to keep things simple and let the statistics guide me. The SMA is the best moving average for you to use.
This is from Larry Connors Daily Battle Plan which he publishes each morning. If you’d like to take a free trial click here, or call 1-888-484-8220 ext 1 to start your free trial today.